Crypto Academy Week 7 Homework Post for [@yohan2on] | Stable coins-Part2(100% powered up)

Hello steemians,

The USDC is a virtual US dollar. It is a fiat stablecoin developed by Circle. Cryptocurrency originates from the Ethereum blockchain. How does it convey the value of a US dollar? What's his secret? How does it work? Find out the answers in this article written for the 7th week of homework from our kind professor @yohan2on.

What is a stablecoin?

The term stablecoin refers to an asset that aims to maintain its value over the long term. In the world of fiat money, the US dollar is a good example of stablecoin. In the cryptocurrency world, USDC and USDT Tether are called stablecoins.

The stablecoin models come in 3 categories: Fiat-Collateralized, Crypto-Collateralized and No-Collateralized. These stablecoins have the advantage of holding their price and being resistant to hacks. However, they are often centralized, as there is only one owner of the stablecoin.

What is "USDC" stablecoin :

USD Coin (USDC) is a dollar-backed stablecoin with a ratio of 1: 1. It was created by the Center Consortium in september 2018 which has 2 founding members: Circle and Coinbase. The USDC is according to the Center Consortium, issued by regulated financial institutions. A reputable accounting firm is responsible for verifying the level of cash held in reserve, to ensure that it corresponds to the total number of tokens in circulation. This guarantees USDC holders that they can convert 1 USDC to 1 USD at any time.

Source coinmarketcap

As you will surely understand, it is a digital dollar accessible from anywhere in the world. Its objective is to keep a value stable over time around the value of a US dollar (fiat currency which is still a benchmark internationally today). To do this, the Circle company pledges to hold one dollar in the bank for every USDC available in the market. This is how it is able to maintain price stability.

How does the “USDC” token work?

Several solutions are available to the user for obtaining USDC such as wallets, trading platforms or even lending platforms.

Once the user decides to insert funds to purchase USDC, the organization will communicate with the central node "CENTER" which governs all transactions between individuals and financial institutions. By this mechanism the USDC is a centralized cryptocurrency.

In more detail, USDC is an ERC-20 token, token creation occurs through smart contracts available on the Ethereum, Algorand and Solana networks. Smart contracts will define the possibility of sending tokens in exchange for fiat currency still with the rule of 1 $ = 1USDC. When withdrawing dollars, USDC will be burnt to keep parity.

The Algorand blockchain aims to help design a digital and digital economy open to all without borders. Solana on the other hand, is a high performance blockchain that allows the creation of cryptographic applications just like Ethereum.

Let's take an example to make it easier to understand, User A wants to exchange $ 10 for 10 USDC via Trust Wallet.

1. The user will make a request via his Trust wallet to obtain USDC.
2. Trust wallet will transmit the request to the central node "Circle".
3. The central node will collect all the information from the various nodes of the system / financial institutions (banks, bureau de change, etc.).
4. This information will make it possible to validate the smart contract,
5. Once the smart contract has been validated, a positive response will be sent to the user and the creation of tokens will begin.
6. The user will receive these tokens.

The advantages and disadvantages of this cryptocurrency:

Although the project is very promising and the benefits are multiple, there are still loopholes to inspect.

Pros:

• USDC enjoys considerable notoriety as it is considered a pioneer of stablecoins on Coinbase. Granted, there are only a few stablecoins on the platform to compare, however, the USDC remains a case in point.

• The price of USDC does not fluctuate, which is a major advantage for its market and its investment. The platform ensures a middleman-free money transfer, reducing transaction costs. USDC tokens can be used to buy applications online.

Cons:

• There is another stablecoin: Tether's infamous USDT which has sparked a lot of controversy due to its stability. The bad press that USDT has suffered is likely to spill over to USDC. The most reluctant users will find it difficult to adopt this new cryptocurrency.

Conclusion :

USDC has seen rapid adoption. This is explained by the fact that it is supported by Coinbase (a major platform in the cryptocurrency world), but also thanks to the many partnerships that allow easy access to this token.

It will be necessary to watch the development of the USDC, which should take an increasingly important place in the market. Its recent partnerships with Visa, for example, make this token a serious competitor vis-à-vis the regulation that is being put in place around cryptocurrencies.

But beware of USDC's dependence on Circle, the centralization mechanism can be a risk for this token. Additionally, we don't know why Coinbase has reduced its rewards for its users.